388. Memorandum From L.T. Wallace of the Council of Economic Advisers Staff to Hendrik Houthakker of the Council of Economic Advisers1

SUBJECT

  • International Grains Arrangement

Summary of IGA

The IGA is an outgrowth of the Kennedy Round trade negotiations. The final text was developed and negotiated at the International Wheat Conference in Rome, July 12 through August 18, 1967.2 The IGA replaces the 18-year old International Wheat Agreement (IWA)—and, more specifically, the International Wheat Agreement of 1962. The IGA consists of two parts, a Wheat Trade Convention and a Food Aid Convention.

The purpose of IGA is to provide for market stabilization, hopefully stopping actions like the wheat price war of 1965-1966 which was extremely costly to all exporting countries. Advantages to U.S. farmers were specified to be budgetary savings through reduced export subsidies and increased dollar earnings because of both stabilization of wheat prices and stabilization at a high enough level to insure profits.

Participation in IGA includes 33 countries and the EEC. These cover approximately 85-90 percent of the total commercial world wheat trade, as compared with only about 55-60 percent under the old IWA.

U.S. participation in IGA is similar to a treaty—and President Johnson submitted the IGA to the Senate on January 25, 1968.

Wheat Trade Convention

Under the WTC both minimum and maximum prices for 14 major wheats moving in world trade are set. For the U.S. the new minimum [Page 976]prices are generally about 23¢ a bushel more than the old IWA minimums, and maximum prices are about 40¢ higher. The schedule of minimum and maximum prices f.o.b. Gulf ports is attached.3

A Price Review Committee has the authority to establish prices for wheats not listed in the Arrangement (these wheats apparently were the initiating source of the present below-minimum-price-sales problem), and it also has power to adjust minimum prices in response to changes in competitive conditions. The old IWA did not have such a committee.

The IGA obliges, as did the old IWA, both exporters and importers to buy and sell at prices consistent with the established minimums and maximums.

Food Aid Convention

The FAC is a major attempt to attack the global hunger situation by an agreement of commercial exporters and importers to provide a total of 4.5 million metric tons of grain annually to the needy nations of the world. The approximate percentage breakdown of contributions is attached.4

IGA Duration

Both Conventions of the IGA began a 3-year period on July 1, 1968.

Current Status and Problems

Almost all of the major exporting nations have failed to live up to the Arrangement. Basically the reason is that the Arrangement is not structured to a condition of oversupply, and therefore all countries must lower prices if they are to vie for the given demand. Almost all nations have violated the IGA intent, if not its actual provisions, by loopholes found in classifying grades of wheat for export sale. Much of the problem can be traced to the initial setting of the price level, which did not consider a realistic estimate of the true production potential of the world’s wheat countries. In effect a monopoly price is attempted to be maintained in a market climate much more resembling that of perfect competition.

Nobody seems to want to say that the Arrangement has broken down, though all agree that there have been continual violations. Assistant Secretary Palmby, USDA, set up a meeting for major exporters and grain industry interests, to meet in Washington April 2 through 4, to offer recommendations for improving the IGA.

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This year represents a potential growth in wheat supplies. According to a Wall Street Journal article of March 17, 1969, “World wheat trade currently is running at its lowest level in five years, and grain stocks are building up to record levels in producing lands.”

Follow-Up

I will check my source first thing Monday morning to get the recommendations and tone of discussion from the meetings mentioned above.

  1. Source: National Archives, Nixon Presidential Materials, White House Central Files, Houthakker, Box 18, Wheat-IGA. No classification marking.
  2. President Johnson approved the signing of the International Grains Arrangement, which took place on November 8, 1967, on November 6; see Foreign Relations, 1964-1968, vol. IX, Document 354.
  3. Not printed.
  4. Not printed. The shares for the major exporters were: United States, 42 percent; the EEC, 23 percent; Canada, 11 percent; Australia, Japan, and the United Kingdom, each 5 percent.